New AAA Rules for Fixed Time & Cost Construction Arbitration

The American Arbitration Association recently announced new streamlined rules for arbitration specifically designed for the construction industry. AAA believes that the new procedures are most appropriate in cases involving discrete issues that require limited document exchange or other discovery. The Rules definitely anticipate the parties cooperating at a level that is sometimes difficult to achieve in practice. The Rules are available on AAA’s website or downloadable on this site.

Under the Supplementary Rules, AAA’s fees, arbitrator compensation, and time to hearing are all fixed based upon the value of the larger of the claim or any counterclaim. With the new rules Parties can generally calculate the cost and time from claim submission to award. AAA fees are fixed and the arbitrator’s fees are capped though there is some flexibility built in, e.g., if the arbitrator is required to resolve disputes, make a site visit, or review post-hearing briefs. In general both the cost of administration and the arbitrator’s fees should be significantly lower than with Regular Track or Large Complex Case Track. In addition, the Rules set a maximum time period from claim submission to award. Both the maximum cost and the maximum time period are established based upon the higher value of the Claim or the Counterclaim.

For example, where the higher value is less than $250,000, AAA fees are $2,500, the Award is to be issued within 120 days of the claim submission, arbitrator compensation is capped at $250 per hour and $10,500 in total. The Rules also limit the number of hearing days for this size claim to 3 days and encourage the Parties to allocate the time. As described above, other fees could be incurred but the Rule certainly add a great deal of predictability.

The Supplementary Rules encourage party participation by requiring the parties to provide contact information for a “designated employee.” All communications from AAA or the arbitrator must also copy this designated employee. The Rules also anticipate cooperation between the parties but also provide AAA with certain enforcement mechanisms. As previously mentioned, failure to pay fee deposits when due could result in a default award. In addition, AAA has the discretion to administer the arbitration under the regular track or Large Complex Case Track if the parties fail to comply with the Supplementary Rules. The Parties will be responsible for any additional fees as a result of the change.

In summary, the new Supplementary Rules should significantly expedite the process and reduce costs while making them more predictable.